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MGT6153

Autumn Semester 2021-2022

MOCK EXAM PAPER

FINANCIAL ACCOUNTING & FINANCIAL STATEMENTS ANALYSIS


SECTION A (Compulsory Question)

Question A

The following trial balance was taken from the books of Aberdeen Ltd, as at 31

December 2021:

Dr £

Cr £

Revenue

2,347,000

Inventory at 1 January 2021

542,000

Purchases

1,932,000

Land at cost

750,000

Buildings at cost

3,500,000

Vehicles at cost

42,000

Accumulated depreciation as at 1 January 2021:

Buildings

420,000

Vehicles

10,000

Trade receivables

230,000

Trade payables

235,000

Bank

22,000

Ordinary shares (at par value £0.50)

550,000

6% long term loan

250,000

Share premium

800,000

Retained profits as at 1 January 2021

2,710,000

Distribution costs

87,000

Administrative expenses

120,000

Discounts allowed

32,000

Directors' salary

65,000

7,322,000

7,322,000

The following additional information relates to financial year ended 31 December 2021 and should be taken into consideration in preparing the financial statements of the company:

(i)  The cost of inventory at 31 December 2021 is £500,000. It was found that part of the inventory that has a cost of £23,000 was estimated to have a net realisable value of £20,000 at 31 December 2021.

(ii) Buildings are depreciated using straight line method over 50 years with no residual value.  Vehicles  are  depreciated  at  rate  of 25%  based  on  reducing  balance. Buildings are used for distribution and administration functions equally and vehicles are used for transportations between warehouses.

(iii) Land was revalued at the end of the financial year with a new value of £1,000,000. The directors decided to apply the revaluation model for land.

(iv) Loan interest has not yet been paid.

(v) In December 2021 the company made a 2 for 11 rights issue at £1.20 per share . All  of them  have  been  excised  by the  end  of the  accounting  period  but the transaction has not been recorded in the above trial balance.

(vi) On the date of the financial statements it was decided that receivables amounting to £10,000 are irrecoverable due to a customer going bankrupt and should be

written off as bad debts. It was also decided that a provision for doubtful debts of 5% of the remaining receivables needs to be created and treated as administrative expenses.

(vii)     Assume no taxation.

Required:

For Aberdeen Ltd, prepare the following financial statements for the year ended 31 December 2021 in accordance with IAS 1:

a)  Statement of comprehensive income;

b)  Statement of financial position;

c)  Statement of changes in equity.

(Total 40 Marks)


END OF SECTION A

SECTION B

(ANSWER ONLY TWO FROM FOUR QUESTIONS)

Question B1

The following information is relating to Bristol plc:

Extract of Bristol plc statement of financial position at 31 December

2021

2020

£000

£000

Non-current assets

Land at cost

7,000

3,600

Plant and machinery at cost

12,200

11,600

Accumulated depreciation

(7,800)

(7,700)

11,400

7,500

Current assets

Inventory

6,870

6,300

Trade and other receivables

4,400

3,800

Bank

320

1,000

11,590

11,100

Total assets

22,990

18,600

Current liabilities

Bank overdraft

3,500

3,000

Trade and other payables

2,900

3,100

Taxation

1,640

2,300

8,040

8,400

Non-current liabilities

8% Debentures

4,000

--

Equity

Ordinary share capital £1

2,300

2,000

Share premium

1,200

1,200

Retained earnings

7,450

7,000

10,950

10,200

Total equity and liabilities

22,990

18,600

Extract of Bristol plc statement of comprehensive income for the year ending

31 December 2021

Revenue

Cost of sales

Gross profit

Operating expenses

Operating profit

Finance cost (interest)

Profit before tax

Taxation

Profit for the period

Additional information:

£000

9,700

(1,200)

8,500

(5,750)

2,750

(600)

2,150

(1,340)

810

i.     Finance costs include overdraft interest of £280,000, which has been fully paid by the end of the year; and debenture interest of £320,000 , with half of which accrued.

ii.     During the year,  plant  and  equipment that  had  a  cost of £2,400,000  and accumulated depreciation of £1,180,000 was sold for £1,130,000.

iii.     During the year, Bristol purchased land for £3,400,000 and plant and machinery for £3,000,000, funded by issuing of debentures and ordinary shares (at £1).

iv.     Dividends of £360,000 were paid during the year.

Required:

a)  Using the Indirect method, prepare the statement of cash flows of Bristol plc as at 31 December 2021 in consistent with the requirements of International Accounting Standards (IAS 7).

(22 Marks)

b)  Explain  the  difference  between  the  direct  and  indirect  methods  used  for preparing the operating activities section of the statement of cash flows and discuss the relative benefits and limitations of each method.

(8 Marks)

(Total 30 Marks)